Advanced Audit and Assurance (International) · Code of Ethics for Professional Accountants

Auditor Independence and Non-Assurance Services for ACCA AAA

Updated 11 October 2026

Auditor independence means being free of influences that compromise judgement (independence of mind) and avoiding facts that make others doubt your objectivity (independence in appearance). For each scenario, identify the threat, judge its significance, apply safeguards, or decline or resign if none work. Non-assurance services need extra care, especially for listed entities.

Understand Auditor Independence and Non-Assurance Services

An audit is only valuable if users trust the opinion. That trust depends on the auditor being independent. The IESBA Code treats independence as necessary for the fundamental principle of objectivity, and for audits it requires firms to be independent of the client.

Independence of mind is a state of mind. It lets you give an opinion without being affected by influences that compromise professional judgement. You act with integrity, objectivity and professional scepticism.

Independence in appearance is about how things look. A reasonable and informed third party would weigh all the facts and circumstances. If they would conclude that integrity, objectivity or scepticism has been compromised, independence is lost in appearance, even if your own mind is unaffected.

The Code uses the conceptual framework: identify threats, evaluate them, and address them. The threat categories are self-interest, self-review, advocacy, familiarity and intimidation. Typical sources are financial interests, loans, family and personal relationships, long association of senior staff, fee dependency and overdue fees, contingent fees, gifts and hospitality, and non-assurance services.

The Code is stricter for public interest entities (PIEs), which include listed entities. Providing non-assurance services to an audit client is not banned in general. It is banned where it creates a self-review threat that cannot be reduced to an acceptable level, or where management responsibilities would be taken on. For PIEs there are extra prohibitions, and the firm must communicate with those charged with governance. Local law may be stricter than the Code, so always say the stricter rule applies.

Key rules to remember

Five threat categories: Self-interest, Self-review, Advocacy, Familiarity, Intimidation; Name the category for every issue you spot. It earns marks and keeps your answer structured.
Conceptual framework approach: Identify threats → Evaluate significance → Address (eliminate, safeguard, or decline/end); Safeguards only help if they reduce the threat to an acceptable level. If not, decline or resign.
Independence test: Independence = independence of mind + independence in appearance; Appearance is judged by a reasonable and informed third party, not by the auditor.
Management responsibility: Firm must never assume a management responsibility for an audit client; Examples are making decisions for management or taking custody of assets. No safeguard fixes this.
Fee dependency: PIE audit client: total fees > 15% of the firm's total fees for two consecutive years → disclose to those charged with governance and discuss which action to take. Fees > 15% for each of five consecutive years → the firm must have a pre-issuance review (or post-issuance review, per the Code) by an external party; This 15% rule applies to PIE audit clients. The two-year trigger requires disclosure to those charged with governance and a discussion of the action to take. The five-year trigger requires an external review. The Code does not require public disclosure. For a non-PIE there is no fixed percentage, and the firm evaluates the significance of fee dependency under the general framework. High fee dependency creates self-interest and intimidation threats.
Long association: PIE audit: the engagement partner may serve a maximum of 7 years, then must cool off for 5 consecutive years; The 7-year time-on limit and the 5-year cooling-off apply to the engagement partner. Other key audit partners and the engagement quality reviewer have different time-on and cooling-off rules.
Contingent fees: Contingent fee for an audit = not permitted; for non-assurance services, not permitted if the fee is material or the outcome depends on a future or contemporary audit judgement, or if the threat cannot be reduced to an acceptable level; A fee based on a result of the work, e.g. a percentage of savings, is contingent. It creates a self-interest threat. The Code does not ban every contingent fee outright, but where the threat cannot be addressed you decline the contingent basis.

How to solve Auditor Independence and Non-Assurance Services questions

Use the same sequence for any independence scenario. It keeps you structured and ensures you apply the facts instead of reciting rules.

1Read the requirement. Decide whether it asks you to identify threats, evaluate them, recommend safeguards, or advise whether to accept or continue.
2Underline each fact in the scenario that could affect independence, such as shareholdings, family ties, fees, years served, gifts and extra services.
3For each fact, name the threat type (self-interest, self-review, advocacy, familiarity or intimidation) and explain why using the scenario's facts.
4Evaluate significance. Consider whether the client is a PIE or listed, the size of the amounts, the seniority of the people involved, and how it looks to an informed third party.
5State the rule that applies, for example the ban on contingent fees, no management responsibilities, or the long association limit for PIEs.
6Recommend specific actions: remove the person, use a different team, hire an independent reviewer, disclose to those charged with governance, decline the service, or resign.
7Conclude clearly: independence is acceptable with safeguards, or the firm should decline or withdraw.
8Add professional skills: be sceptical about management's explanations, give a balanced judgement, and write clearly to the audience, such as the partner or audit committee.

Quickest way: Threat, Rule, Action in three lines per issue

When to use it: Use this when time is short, or when a Section B question has many issues and few marks per point.

Write the issue and its threat in one line, e.g. 'Fee of 20% of firm income creates self-interest and intimidation threats.'
Write the rule or why it matters in one line, linking to PIE status or the scenario figures.
Write the action in one line: the specific safeguard, or decline or resign if no safeguard works.
Move on. Finish with a one-line overall conclusion.

Common mistakes in Auditor Independence and Non-Assurance Services

Listing threats without applying them to the scenario facts.
Students memorise the five categories and write definitions to save thinking time.
Fix: Quote a fact from the scenario, say which threat it creates, then say why. Definitions alone earn little.
Saying non-assurance services are always prohibited for audit clients.
Students overstate the rule after reading about self-review threats.
Fix: Say they are allowed where threats are at an acceptable level. They are prohibited where a self-review threat cannot be addressed, where management responsibilities are taken on, or where specific PIE prohibitions apply.
Recommending safeguards that do not fit the threat.
Students default to 'use a different team' or 'second partner review' for every issue.
Fix: Match the action to the problem. A financial interest is solved by disposal. A prohibited service is solved by declining it. Say when no safeguard works.
Confusing independence of mind with independence in appearance.
Both phrases sound alike and students think the auditor's own belief settles the matter.
Fix: Say mind is the auditor's state of mind and appearance is how a reasonable and informed third party would view the facts. Both must hold.
Ignoring whether the client is a PIE or listed.
Students miss the status detail in the scenario or forget that rules are stricter for PIEs.
Fix: Check client status at the start. Mention the stricter rules and the need to communicate with those charged with governance where it applies.
Ending without a decision.
Students run out of time or fear being wrong.
Fix: Always conclude: accept with safeguards, decline the service, or resign. A reasoned conclusion earns professional skills marks.

Worked examples

Example 1

Harbour & Co audits Zenith Ltd, a listed company. The audit partner, Mira, has led the audit for eight years. Harbour & Co also prepares Zenith's financial statements from a trial balance supplied by management, and Zenith's finance director is Mira's brother. Discuss the independence threats and recommend actions. (10 marks)

Show the solution

Long association: Mira has led the audit for eight years on a listed client. This creates a familiarity threat. For a PIE, the engagement partner may serve a maximum of seven years and must then cool off for five consecutive years. Other key audit partners and the engagement quality reviewer have different time-on and cooling-off rules. Mira has exceeded seven years, so she should rotate off now and stay off the audit for the five-year cooling-off period.
Family relationship: Mira's brother is the finance director, a role with significant influence over the financial statements. This is a close family relationship and creates familiarity and self-interest threats. Where a close family member is in a position to exert significant influence over the financial statements, the threat is so significant that the individual must be removed from the audit team. Safeguards cannot work while Mira stays on the team, so she must be removed.
Preparing financial statements: Harbour & Co prepares the statements for a listed client. This creates a self-review threat, because the firm would audit its own work. For a listed (PIE) client the Code prohibits preparing accounting records and financial statements, except in emergency situations and then only with specific conditions. No emergency is described here, and none of those conditions apply. The service must therefore be ceased.
Overall action: Replace Mira with a new engagement partner, and ensure she has no influence over the audit. Cease the accounting service. If the firm will not cease it, it cannot remain Zenith's auditor and must resign or decline the audit. Consider an engagement quality review of the current audit.

Answer: Three threats arise: familiarity from long association (rotate Mira off, with a five-year cooling-off), familiarity and self-interest from the family tie to the finance director (the threat is so significant that Mira must be removed from the team, as no safeguard works while she stays), and self-review from preparing the statements (this service is prohibited for a listed client, so it must be ceased). If the firm will not cease the service, it cannot remain auditor and must resign or decline the audit.

Example 2

A firm audits Delta Ltd, an unlisted company. Delta offers the firm a fee for tax advice equal to 10% of the tax saved. The firm also received a ₹40,000 gift hamper from Delta's chairman. Delta's audit fee is 25% of the firm's total income. Evaluate the issues. (8 marks)

Show the solution

Contingent fee: A fee based on the tax saved is contingent on the outcome of the tax work, so it creates a self-interest threat. Where the fee is material, or the outcome depends on a future or contemporary audit judgement, the threat cannot be addressed. The facts do not say whether the fee is material, so the firm must assess this. If it is material or depends on an audit judgement, decline the contingent basis and propose a fixed or time-based fee, if the service is otherwise acceptable.
Gift: A ₹40,000 hamper is a gift from a client's chairman. This creates self-interest and familiarity threats. Unless the value is clearly trivial and inconsequential, the firm should decline it. A hamper of this size is unlikely to be trivial, so return it and remind staff of the firm's gifts policy.
Fee dependency: The audit fee is 25% of the firm's income. This creates self-interest and intimidation threats, because the firm may fear losing the client. The 15% two-year rule applies to PIE audit clients, and Delta is unlisted. The threat is still evaluated under the general framework and is significant here. Safeguards: reduce reliance by winning other clients, have a pre-issuance review by an independent partner, and discuss with those charged with governance. If the dependency persists, consider whether the firm can continue.
Conclusion: Decline the contingent fee basis, return the gift, and apply a review for fee dependency. Without these, independence is not maintained.

Answer: Decline the contingent fee basis and use a fixed or time-based fee, return the hamper, and address the 25% fee dependency with an independent review and a plan to reduce reliance. If dependency cannot be reduced to an acceptable level, the firm should consider resigning.

Exam tips

Spot client status early. Listed or PIE status usually changes the answer, so say it in your first line.
Use the scenario's numbers, such as years served, percentages and roles. Examiners reward application over recited rules.
Match each threat to a specific action. Say plainly when no safeguard can work and the firm must decline or resign.
Write for the stated audience, such as the audit partner or audit committee. Keep a professional, balanced tone for professional skills marks.
Where the question asks for a judgement, give a clear conclusion in the last line. Do not leave the issue open.

Practice questions from Code of Ethics for Professional Accountants

Auditor Independence and Non-Assurance Services: frequently asked questions

What is the difference between independence of mind and independence in appearance?

Independence of mind is the auditor's own state of mind, allowing an unbiased opinion. Independence in appearance is how a reasonable and informed third party would see the facts. You need both, because an auditor who looks compromised damages trust even if their judgement is sound.

Can an auditor provide non-assurance services to an audit client?

Yes, in many cases. The firm must identify threats, especially self-review, and reduce them to an acceptable level. Some services are prohibited, such as taking on management responsibilities. For PIEs, the Code adds further prohibitions and requires communication with those charged with governance.

Why does long association matter for auditors?

Long service with a client can create a familiarity threat, because the auditor becomes too comfortable and less sceptical. For PIE audits the Code limits how long a key audit partner may serve, followed by a cooling-off period. Rotation brings a fresh view.

Are contingent fees allowed for audit clients?

Contingent fees for audit engagements are not permitted. For non-assurance services to audit clients they are not permitted where the amount is material or the outcome depends on a future audit judgement. A fixed or time-based fee avoids the problem.